Introduction#

Morgan Stanley has pinpointed significant opportunities within the Greater China semiconductor sector. The bank has highlighted three companies that are well-positioned to capitalize on the growing demand for artificial intelligence (AI) and advancements in testing technologies.

Winway Technology Co Ltd#

At the top of Morgan Stanley's list is Winway Technology Co Ltd (6515.TW). The bank used a financial model called the residual income model, which estimates a company's value based on its future earnings potential. For Winway, they applied a 9.14% cost of equity, assuming an 80% payout ratio (the portion of earnings paid out as dividends), a medium-term growth rate of 16.4%, and a terminal growth rate of 4.5%.

Potential upside risks for Winway include a faster-than-expected adoption of new technologies like hypersockets and MEMS probe cards, which are used in testing semiconductor devices, and a surge in demand for edge AI applications. Conversely, downside risks involve slower technology adoption and a lack of demand for edge AI in the coming years.

MPI Corporation#

Next on the list is MPI Corporation (6223.TWO), which has a price target based on a 9.78% cost of equity, a 75% payout ratio, a medium-term growth rate of 15%, and a terminal growth rate of 4.0%. This target suggests that MPI's valuation could reach 44 times its estimated earnings for 2027 and 24 times for 2028. Upside risks include stronger AI demand and market share gains, while downside risks involve slower AI demand and delays in developing new technologies.

Hon Precision#

Completing the top three is Hon Precision (7769.TW). Morgan Stanley's target for Hon Precision uses a 9.8% cost of equity, a 62% payout ratio, a medium-term growth rate of 10%, and a terminal growth rate of 3.0%. The price target indicates a valuation of 43 times estimated earnings for 2026, 26 times for 2027, and 16 times for 2028. Upside risks include increased AI demand and market share expansion, while downside risks focus on potential losses to competitors and delays in technology development.